F

I N A N C E

Euroland Foods S.A

Azwimar Putranusa
Anugrah Tri Padma
Syachriani Syam
Anindya Prawita Sari

29114335
29114397
29114384
29114337

YP 52 B

SCHOOL OF BUSINESS AND MANAGEMENT

MASTER OF BUSINESS ADMINISTRATION
INSTITUT TEKNOLOGI BANDUNG
2015

Background
Euroland Foods S.A. Headquartered in Belgium. It is one of the leading European producers
of ice-creams, yogurt, bottled water, and fruit juice. Its product were sold thoughout
Scandinavia, Britain, Belgium, Netherlands, etc. The company was founded in 1924 by Theo
Verdin, a Belgian farmer as an offshoot of his dairy business. Through hi keen attention to
product development and shrewd marketing, the business grew steadily over the years. The
company went public in 1979, and by 1993 was listed for trading on London, Frankfurt, and
Brussels exchange. In 2000 Euroland Foods had sales of almost EUR 1.6 Billion.
Ice cream accounted for 60% of the companys revenue ; yogurt, which was introduced in
1982, contributed about 20%. The remaining 20% of sales was divided equally between bottled
water and fruit juices. Euroland foods brand name was Rolly which was represented by a fat
dancing bear in farmer clothing. Ice cream, the companys leading product, had a loyal base of
customers who sought out its high butterfat content, large chunk of chocolate, fruit, nuts, and
wide range of original falvours. The Capital Budget was to discuss in the Board of Directors. 11
major projects totaled EUR 316 million were up for consideration. However, the limit was set at
EUR 120 million. The challenge for the senior management of Euroland Foods S.A. was to
allocate funds among a range of compelling project.

Problem
The senior manager of Euroland Foods was to meet to draw up the firms capital budget
for the way year, up for consideration were 11 projects that totaled 316M, unfortunately, the
board of direction had imposed this spending limit capital project of only 120M. Euroland food
have to sequence the 11 project, so euroland will know which project have the biggest profit for
company.

Analysis
We use two financial test:
1. Payback period
2. IRR
Type
New product or new markets
Product or market extension
Efficiency improvements
Safety or environment
Weighted-average cost of capital (WACC): 10,5%

Min. IRR
12%
10%
8%
No test

Max. Payback Period

6 Years
5 Years
4 Years
No test

Conclusion
Pan-Europa is currently trading at a price below comparable companies. This is because
of reduced profitability and a failure to gain sufficient market share for new products. As
analysts are giving a sell signal, raiders are potentially buying up the stock. Clearly then they
must pursue strategies that drive up their stock price. This includes increasing net income and
gross sales. Pan-Europa needs to capitalize on their hard earned increased market share. Humbolt
and Morin should be leading the charge on this strategy.
Exhibit 3 presents three different ways to look at the data. While the NPV at the minimum
accepted ROR includes a risk premium, it doesnt correct for the varying durations of the project.
Instead the best available data would be the Equivalent Annuity that corrects for the project
durations. Using this analysis the preferred project would be 11, the Strategic Acquisition. Then
following in order would be:
1. Southward Expansion
2. Artificial Sweetener
3. Eastward Expansion
4. Inventory Control System
5. Snack Foods
6. New Plant
7. Expanded Plant
8. Automation and Conveyor System
9. Expand Truck Fleet
10. Effluent Treatment Program (which has no NPV)
While the Effluent Treatment Program has no formal NPV, it can be considered an
investment of $4 million now to save a cost of $10 million in 4 years.
Projects that involve small technology changes like expanding the truck fleet would have
low risk. Increasing levels of technological sophistication, such as automation or introducing
artificial sweeteners, into products would also increase implementation risks. Another risk area
for any producer in a capitalist environment is attempting to increase markets with new products
in new areas. The prospective customers may simply choose to not buy the product. Other
elements of risk include project size, complexity, and length of the period of return.
There are real synergies between the plant expansion/additions, automation, truck upgrade, and
geographic expansion projects.
Projects that have no quantitative costs and benefits would include:
Projects that impact the companys regulator compliance such as effluent treatment
(environment) and warehouse automation (safety).
Several of the projects could impact the companys image. For example, the snack food
rollout could be positive because of its wholesome connotations, while the acquisition of
the schnapps brand could be negative. The effluent project could be positive by showing
the companys willingness to act on environmental concerns early. Similarly, the
automation project could cast a positive step towards increased safety. The plant
expansion project may be positive or negative, depending on whether the community
reacts to new jobs or factory encroachment.

Suggestion
Different analysis techniques and different assumptions can be used to correct for the various
factors that affect each project differently. For example:

The time value of money can be accounted for, by using discounting methods such as
NPV or IRR.
Calculating the NPV to infinity or using Equivalent Annuities can account for unequal
lifetimes of the projects.
Risk can be accounted for (at least financially) by increasing the hurdle rate.
The different project sizes can be accounted for by multiplying the NPV by the ratio of
the size of the projects or by using a profitability ratio.

There are many aspects that could invalidate the simple NPV analysis of the projects. They
include:

Risk
Political considerations
Regulatory issues including health, safety, and environmental
Incompatibility with the corporate strategy
Resource availability
Impact on brand or corporate image
Quality and certainty of the data used for analyzing the various projects
Synergies between the projects